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Stamp duty: House price boom and mansion bust

Stamp duty on a £1.5m Clapham home has jumped 12 times over the last 15 years

The Parkwood Estate in Surrey is believed to have been sold for £30m this week during the rush to buy high end homes before the stamp duty hike.

By Anna White, Property correspondent

With just three minutes to spare before the Chancellor’s midnight stamp duty cut-off, central London estate agent Gary Hersham completed his final deal of the day, after his clients went on a £100m property spending spree.

Among the flurry of transactions was the £30m Parkwood Estate, in Surrey, which had been on the market since March. Once a Victorian-style mansion, then conference centre and now derelict building, it comes complete with planning permission for a new 33,000 sq ft luxury home.

It was sold during Wednesday’s stampede as high net-worth individuals and wealthy families sought to avoid a hefty stamp duty bill on their impending purchases.

During last week’s Autumn Statement the Chancellor announced an overhaul to the British stamp duty system, switching the slab based structure, he described as “badly designed” to a graduated one, ridding the housing market of huge jumps in tax at different price points in the market.

Confirming rumours of his big giveaway, Osborne slashed the stamp duty burden for 98pc of buyers.

While he delivered savings for the majority, news of the overhaul sparked chaos in the upper echelons of the market when buyers realised that on properties worth over £937,000 they were facing a big jump in taxes under the new system.

Analysis from property investors JR Capital Buyers found that people purchasing a home with a £1m price tag will pay £3,750 more under the new system but £53,750 more on a £2m home. This rises to £163,750 on a £5m home.

After the initial rush to buy, the Chancellor’s changes will now cause “a deep slowdown”, warned Mr Hersham.

High-end property prices in central London fell 0.2pc last month, as investors await the outcome of the general election and the potential introduction of Labour’s mansion tax. But buyers and analysts alike had not factored in Mr Osborne’s punitive stamp duty reforms.

“It is in London’s £3m to £10m price band where the changes will have the biggest impact, here the market will almost come to a halt, and obviously this will affect estate agents, buying agents and developers in this sector,” said Mr Hersham.

“In the £10m to £15m price band the market will slow, but the effect will be less and the impact will be shorter.”

However, he said any effect on the £15m plus sector would be minor.

“Most people in this sector don’t even know what stamp duty is. For the super-rich the word “stamps” are rare postage items they get their art curators to buy for them for their collection from places like Sotheby’s and Christie’s, not a word they associate with property,” he added.

Wealthy vendors will also have to sharply cut their asking prices to take into account the hike in tax and attract buyers already in cautious mood.

“The [new] tiered rates will trigger downward price corrections,” said John Collier-Wright of JR Capital. “Huge hikes of stamp duty at the upper end will not free up the logjam of sales of £2m plus homes in central London unless vendors lower their expectations.”

Figures from PwC show that a Victorian terrace house on Clapham’s Narbonne Aveneue had a stamp duty price tag of £7,310 in July 1999. Some 15 years later the value of the property has tripled to £1.5m while the stamp duty bill is 12 times as expensive at £93,750.

Fears that this change will cause a further slowdown in the affluent core of the capital was reflected in the share price of Berkeley Homes, the London-based housebuilder, which fell 76p on Wednesday and then recovered, and the London’s most recognised estate agent, Foxtons, which saw its share value slide as much as 6.3pc on the same day.

While property prices at the top end are expected to fall, the cost of renting a property will continue to rocket, with the number of super-luxury homes costing more than £1m a year having already risen by 12.3pc in 2014.

New research from Dataloft and Beauchamp Estates has found that the average weekly rent in London’s ultra-prime lettings has jumped 23pc from £2,813 per week in 2009 to £3,500 or £182,000 a year — just over the average price of a home in England and Wales.

Stamp duty changes combined with political uncertainty have slowed the market further and will push more people to rent, the report said, driving up costs further.

The Chancellor’s disclosure has also prompted activity below the £1m mark but the effect is in stark contrast to that at the top of the market, with his stamp duty changes expected to boost sales and house prices in the mainstream market.

Mr Osborne has restructured the slab system so that there is no stamp duty on the first £125,000, 2pc between £125,000 and £250,000, 5pc between £250,000 and £925,000, 10pc between £925,000 and to £1.5m, and 12pc over everything above.

Just days after the changes were announced, vendors are already upping their asking price, even mid-sale. One first-time buyer said: “I had an offer on a property which looked like it was going through until the agent called 30 minutes after the Autumn Statement and said that in light of the announcement the seller was upping the price.”

The reforms could kick-start the UK housing market, which stalled this autumn after an 8.2pc rise in 2014, and buoy house prices, the Institute of Fiscal Studies has predicted.

“This is a welcome change and a fairer tax,” said Paul Emery, director at PwC. It will allow people to sell their home over the old stamp duty threshold rather than depressing the value and nudging up prices, he said.

While the Chancellor’s announcement was designed to help first-time buyers on to the ladder and second-time movers afford to buy family homes ahead of the general election, there are fears that this could have the opposite effect, fuelling another mini property boom and making home-ownership unaffordable for yet more people, particularly if the UK housing supply crisis is not addressed.

On Tuesday the Government announced plans for a new settlement in Bicester, Oxfordshire, containing up to 13,000 homes, that will be funded with nearly £100m of public spending and loans. However, property experts remained sceptical given that the first of Mr Cameron’s garden cities, Ebbsfleet, has stalled, needing £1bn of investment from either the land owner Land Securities or the Government.

“I’m sure the people of Bicester are somewhat bemused to go to bed as the UK’s pre-eminent outlet shopping destination, only to wake up as a 'Garden City,’” said Adam Challis, head of residential research from property group, JLL.

“This is a low-density delivery model that does not reflect modern needs as an inefficient use of precious development land.”

Buried in the small print of the Chancellor’s Red Book was the commitment of the release of Government land for 150,000 homes between 2015 and 2020. Other public sector initiatives include a £51.6m fund to make a start on a pipeline of 5,000 rental homes in the South East.

But the housebuilders remain adamant the delivery of 200,000 homes a year pledged by politicians is unrealistic and these solutions are years in the making.

As stamp duty reform pushes up prices in the mainstream market the home-ownership dream for many will remain as fantastical as owning a 33,000 sq ft super-luxury mansion.